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Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India

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Rationalizing Energy Subsidies in Agriculture: A scoping study of agricultural subsidies in Haryana, India

This study, undertaken by IISD-GSI and ICF International, untangles the energy-water nexus by analyzing how subsidized electricity has incentivized groundwater extraction in Haryana, India.

The research identifies agricultural subsidies in general and then quantifies the major irrigation, fertilizer and agricultural electricity subsidies. It finds that, in the basket of normalized electricity, surface irrigation and fertilizer subsidies available to farmers in 2015, the largest share of subsidies goes to electricity for groundwater extraction (51 per cent), followed by fertilizer subsidies (35 per cent). Taking subsidies as the percentage of profit margins, the study identifies that wheat farmers will have more difficulties with subsidy rationalization and rice farmers will have less.

The study concludes with options available for the reform of electricity, irrigation and fertilizer subsidies. Given the diversity of Haryana in terms of groundwater levels, canal water availability, electricity supply, fertilizer availability and soil quality, along with a host of other region-specific issues, this study recommends spatial targeting. Developing a crop-specific strategy for select districts is considered the only sustainable way forward. The paper highlights the financial case for energy-efficient pumpsets in particular regions. It also emphasizes the general need for more in-depth political economy analysis of the political action and influence by consumer groups from one side, and the operation and future of distribution companies from another.